No spectrum transfer charge for telecom M&As

The telecoms department (DoT) will ask the Union Cabinet to reject the proposal to impose a special levy on mergers and acquisitions in the sector.

After mobile phone companies that bagged licences in 2008 issued fresh equity to foreign investors at a huge premium, the DoT had proposed a spectrum transfer charge to prevent operators from making windfall gains by selling airwaves at market valuations.

Sector regulator Trai then suggested that the spectrum transfer fee be fixed at 5% the difference between the transaction price and the market price in the case of M&As. But subsequently, the Telecom Commission, the highest decision making body of the communications ministry had rejected Trai's proposal on the ground that the proposed 'charge had no sound rationale'.

Two developments post this has led the DoT to seek Cabinet approval of rejecting the proposal to impose spectrum transfer charge on M&As. First, the Supreme Court canceled the mobile permits issued to most new entrants in 2008 by former telecom minister in February this year.

Besides, the DoT has also proposed to make it compulsory for all operators to match the auction-determined price for their existing 2G airwaves for the remaining period of their licences, and hopes that the policy change will bring incumbents and those companies whose permits were cancelled on the same platform, and offer the industry a level playing field.

With all companies being asked to shell out the market rate for the spectrum they hold, a spectrum transfer fee during M&As, to check windfall gains becomes untenable, explained an official aware of the development.

The proposal to drop the spectrum transfer fee is part of the same Cabinet note that seeks to make it compulsory for all operators to match the auction-determined price for their existing 2G airwaves for the remaining period of their licences.

If existing operators were to pay the equivalent of the auctioned determined price for all the airwaves they hold, they can also extend the tenure of their current spectrum holdings in the 1800 MHz space for 10-year period.

The Cabinet note, which has been circulated to all ministries for their comments, says this 'one-time fee' is being imposed on all existing mobile phone companies for creating a level playing field.

While examining the implications of the Supreme Court order (quashing 121 licences issued in 2008 by former telecom minister A Raja), it was noted that several of the operators who have received spectrum ranging from 1994-2009 had paid price ranging from zero to Rs 1,658 crore on pan-India basis.

Consequently it was observed that in a situation where new players who will come in will pay for entire spectrum, there will be no level playing field between them and those who received spectrum at administrative price,"" the note said.